iShares MSCI ACWI (All Country World Index) Index Fund (ACWI)
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- All Comments on ACWI
- General Discussion on ACWI
- Explore More Core [view article]
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- BGI's All World ETF Could Fundamentally Change the Way People Invest [view article]
- Total Stock Market ETFs vs. Slice 'n Dice [view article]
- iShares Launching 5 New International ETFs Including Israel, Thailand and Turkey [view article]
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- Explore More Core
- Total Stock Market ETFs vs. Slice 'n Dice
- BGI's All World ETF Could Fundamentally Change the Way People Invest
- Vanguard Files for All-World ETF on Heels of BGI Launch
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- Latest iShares ETF Launch Interesting on 3 Levels
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General Discussion on ACWI
Are the world equity markets a buy or sell? I don't even know how to go about answering that question.On Apr 06 05:24 AM SeekingAlphaEditors wrote:
> Is this a buy or a sell? Reply
Jackson, SA
Founder
Explore More Core [view article]
Roger, what I love about your articles is how they reflect a real understanding of how investors behave in the real world, as opposed to in theory or ideally.When I wrote the ETF Investment Guide ( seekingalpha.com/article/15134-the-seeki... ) my goal was to prove to investors that they could do it themselves. But I received a ton of feedback from investors saying "I still need help, even wtih a portfolio of only a few ETFs".
That seems to be what you're saying in this comment -- that even managing a simple ETF portfolio and rebalancing it is too much for many people, and they might want to look at other options to reduce volatility.
On Apr 07 01:32 PM RogerNusbaum wrote:
> David, two ways to possibly address your question.
>
> One is how lazy does one want to be? also how often would someone
> rebalance? I'm not sure it is economical for people to rebalance
> based on a 5% move, for example. There is some number for each person
> where it does makes sense. With $50,000 total 5% is probably no,
> with $5 million it would be economical.
>
> Despite that it might not be economical people do feel, emotionally
> a 5-10% decline so the right absolute fund could help.
>
> Another thing about rebalancing is that people seem to become reluctant
> to buy more stock when the market drops, just normal human nature.
>
>
> It is possible an absolute fund could lessen the blow for people
> who are not good at rebalancing.
>
> Lastly, its just a theoretical example:-) Reply
Nusbaum
Explore More Core [view article]
David, two ways to possibly address your question.One is how lazy does one want to be? also how often would someone rebalance? I'm not sure it is economical for people to rebalance based on a 5% move, for example. There is some number for each person where it does makes sense. With $50,000 total 5% is probably no, with $5 million it would be economical.
Despite that it might not be economical people do feel, emotionally a 5-10% decline so the right absolute fund could help.
Another thing about rebalancing is that people seem to become reluctant to buy more stock when the market drops, just normal human nature.
It is possible an absolute fund could lessen the blow for people who are not good at rebalancing.
Lastly, its just a theoretical example:-) Reply
Editors
General Discussion on ACWI
Is this a buy or a sell? ReplyJackson, SA
Founder
Broad International ETFs [view article]
Update: We've added Roger Nusbaum's short article "Explore More Core" ( seekingalpha.com/article/71235-explore-m... ) to the Further Reading section.It's short, and asks more questions than it answers, but it touches on a crucial issue: Should you build a portfolio with an All World ETF as the core, supplemented by perhaps one other instrument? Reply
Jackson, SA
Founder
Explore More Core [view article]
Roger, can you explain more your thinking on smoothing returns with some sort of absolute return instrument, as opposed to rebalancing? ReplyJackson, SA
Founder
Broad International ETFs [view article]
Update: In the Further Reading section, we've added two articles about building a portfolio from an All World ETF:BGI's All World ETF Could Fundamentally Change the Way People Invest (Matt Hougan)
seekingalpha.com/article/71101-bgi-s-all...
Total Stock Market ETFs vs. Slice 'n Dice (Murray Coleman)
seekingalpha.com/article/71180-total-sto... Reply
Jackson, SA
Founder
Broad International ETFs [view article]
Update: we just added Barclays' iShares MSCI ACWI (All Country World Index) Index Fund ETF (ACWI) to the list. ReplyiShares' Latest: Innovation Worth the Cost? [view article]
Not only are Vanguards expenses lower than iShares in almost every case, but they do a much better job tracking their indexes. Vanguard often even slightly beats their target indexes, while iShares lags them. For a typical example, compare the returns of VWO and EEM, which track the same MSCI index. ReplyExplore More Core [view article]
This only works if there's some level of rebalancing. I would want to have more small/micro exposure and not tilted heavily toward the global megacaps. ReplyExplore More Core [view article]
Do you ever wake up at night and wonder if all the same ETFs coming to market by competing issuers isn't just a game of musical chairs being played on the deck of the Titanic? ReplyImperator
Explore More Core [view article]
I wonder what the merits are of the new Vanguard all world index versus VTI+VEU. The all world index could be good if commissions are an issue. Extra commissions from buying both VTI and VEU or the (presently) cheaper expense ratio of VTI+VEU.Another thing is that allegedly the new Vanguard ETF won't have any small cap so it may be necessary to buy more shares of small cap ETFs to balance the all large and mid cap all world ETF. No global small cap yet so that leaves DGS, GWX, VBR/VB and some others until then. Although one could argue that this will add to commissions, I would normally have some small cap funds regardless of whether I chose the all world or VTI+VEU.
I already have VTI+VEU so I must see whether it makes sense to stop adding to those and switch to buying the all world. Reply
ing
Explore More Core [view article]
too much subprime markets exposure by now, maybe after the reality chek... ReplyBGI's All World ETF Could Fundamentally Change the Way People Invest [view article]
Most index fund or index ETF investors look at MARKET CAPITALIZATION of world stock markets---not at PPP-adjusted GDP.That's why the USA gets approximately 40% of the world stock market allocation instead of 25%. Reply
Total Stock Market ETFs vs. Slice 'n Dice [view article]
Emergency funds = SufficientDebt: None
Age: 50
Situation: Married couple with children. Spouse aged 50. Four children aged 21, 18, 13, and 11. Early retirement planned for July 2009. No future pensions or company sponsored healthcare. Minimal Social Security benefits in 12 to 20 years. 100% of early retirement living expenses must come from the retirement portfolio.
Desired Asset allocation: From 60/10/30 sliced and diced to 70/0/30 lumped (stocks/hard assets/bonds)
Intl allocation: Ranging from 50% of stocks in sliced and diced portfolios to 0% in the lumped portfolio.
Portfolio size = Sufficient
Planned Initial Annual Withdrawal Rate: Minimum 3.00% to maximum 3.60% assets per year.
I. THE PORTFOLIOS
A. Totally Sliced and Diced Portfolio
US Stocks 30%
6.25% VTI (US Large Cap Core)
6.25% VTV (US Large Cap Value)
6.25% VB (US Small Cap Core)
6.25% VBR (US Small Cap Value)
5.00% VNQ (US REIT)
Non-US Stocks 30%
10% VEU (Non-US Large Cap Core)
5% GWX (Non-US Small Cap Growth)
5% DLS (Non-US Small Cap Value)
5% VWO (Emerging Market Large Cap Core)
5% WPS (Non-US REIT)
Hard Assets 10%
5% GLD (Gold)
5% DBC (Commodities)
Fixed Income 30%
15% USD 1yr CD
15% BWX (Non-US Treasury Bond ETF)
B. Cheaply Sliced and Diced Portfolio
US Stocks 35%
8.75% VTI (US Large Cap Core)
8.75% VTV (US Large Cap Value)
8.75% VB (US Small Cap Core)
8.75% VBR (US Small Cap Value)
Non-US Stocks 35%
35% VEU (Non-US Large Cap Core)
Fixed Income 30%
30% USD 1yr CD
C. Lumped Portfolio
US Stocks 70%
70% VTI (US Large Cap Core)
Fixed Income 30%
30% USD 1yr CD
II. PORTFOLIO STATISTICS
A. Federal Tax Rate (Ratio) = X% of total portfolio per year
Totally Sliced = 0.50%
Cheaply Sliced = 0.33%
Lumped = 0.44%
B. P/E of stock portfolio TTM (with REITs)
Totally Sliced = 17.11
Cheaply Sliced = N/A
Lumped = N/A
C. P/E of stock portfolio TTM (minus REITs)
Totally Sliced = 14.03
Cheaply Sliced = 15.04
Lumped = 15.97
D. Portfolio Net Yield = X% [Gross Yield - Total Expense Ratio (Bernstein-Galeno)]
Totally Sliced = 1.11%
Cheaply Sliced = 1.85%
Lumped = 2.37%
E. Stated Expense Ratios = X% of total portfolio
Totally Sliced = 0.76%
Cheaply Sliced = 0.34%
Lumped = 0.08%
F. Total Expense Ratios (Bernstein-Galeno) = X% of total portfolio (Expense Ratios + Commissions + Bid-Ask Spreads + Impact Costs + Tax Ratio + Rebalancing Costs)
Totally Sliced = 1.25%
Cheaply Sliced = 0.67%
Lumped = 0.53%
G. Rebalancing Costs = X% of total portfolio per year
Totally Sliced = Undetermined. Assume zero at this time.
Cheaply Sliced = Undetermined. Assume zero at this time.
Lumped = Undetermined. Assume zero at this time.
H. Frictionless (cost-free) Real (inflation adjusted) Annual Portfolio Growth Rate Assumptions going forward: 2% for fixed income and hard assets. 4% for US and Foreign large caps. 6% for US and Foreign small caps and REITs.
Totally Sliced = 3.95%
Cheaply Sliced = 3.75%
Lumped = 3.40%
I. NET Real (inflation adjusted) Annual Portfolio Growth Rate Assumptions going forward: [Frictionless REAL Annual Growth Rate] – [TER-Bernstein-Galeno]
Totally Sliced = 3.97 – 1.25 = 2.70%
Cheaply Sliced = 3.75 – 0.67 = 3.08%
Lumped = 3.40 – 0.53 = 2.87%
III. SCENARIOS:
A. Over 50 years, $10,000 in a Totally Sliced and Diced Portfolio will grow to a frictionless (cost free) inflation-adjusted $69,378. Net of TER-Bernstein-Galeno costs, this will grow to $37,990. The investor will capture 54.6% of the frictionless terminal value while financial croupiers (“Wall Street” and the IRS) will rake in 45.4%.
B. Over 50 years, $10,000 in a Cheaply Sliced and Diced Portfolio will grow to a frictionless (cost free) inflation-adjusted $63,009. Net of TER-Bernstein-Galeno costs, this will grow to $45,754. The investor will capture 72.3% of the frictionless terminal value while financial croupiers (“Wall Street” and the IRS) will rake in 27.7%.
C. Over 50 years, $10,000 in a Lumped Portfolio will grow to a frictionless (cost free) inflation-adjusted $53,214. Net of TER-Bernstein-Galeno costs, this will grow to $41,156. The investor will capture 77.3% of the frictionless terminal value while financial croupiers (“Wall Street” and the IRS) will rake in 22.7%.
IV. COMMENTS:
Not taking into account rebalancing costs or anything that I’ve either missed or miscalculated, it appears that the Cheaply Sliced and Diced Portfolio is the way to go here.
Conclusion here is that slicing and dicing a portfolio is good up to a point. The costs of slicing and dicing for an indexed portfolio may be very important.
Even indexed portfolios are expensive when you look at total costs which include Expense Ratios, Commissions, Bid-Ask Spreads, Impact Costs, Taxes, and Rebalancing Costs (uncalculated at this time).
Between “Wall Street” and the IRS, an indexed portfolio investor using the above portfolios will still sacrifice 45.4%, 27.7%, or 22.7% respectively of the 50 year terminal values to these financial croupiers who put up 0% of the funds and take 0% of the financial risk.
V. QUESTIONS:
Is there anything I’ve missed or omitted before “dissing” the asset-class junkie’s preference (i.e. my own addiction) for extremely sliced and diced portfolios?
Comments and or questions are welcome. Reply